“On Our Technical Watch” Review - Off To A Good Start

Global indices posted strong gains in January, underpinned by the continued optimism in US corporate earnings and a slew of positive economic data from two of the world's largest economies (namely the US and China). In particular, the Dow Jones Industrial Average rose almost 800 points (+5.6%) in the month to levels not seen since October 2007. The key European benchmarks were also seen nearing their all-time highs while closer to home, China's main index (Shanghai Composite Index +5.1%) has entered a bull market on signs of an economic  recovery. 

FBM KLCI's January Performance. On the local front, the disparity in the benchmark performances couldn't be more obvious (See Exhibit 2). The FBM KLCI lost 61.40 points (-3.6%) for the month of January with the bluechip consumer and plantation stocks leading the declines. Speculations surrounding the impending general elections were a dampener for the local bourse and investors grew impatient over the uncertainty surrounding the matter. As a result, the FBM KLCI tumbled as much as 74 points within a two-day time frame in the month before paring down some of the earlier losses. Even with the subsequent bargain hunting, we sense that the rebound is lacklustre and continue to emphasise caution on its performance as the index now inches higher toward its crucial 50- and 100- SMAs.    

On Our Technical Watch Monthly Review. As we venture into the year 2013, we have decided to include a monthly review to complement our daily "On Our Technical Watch" ("OT") reports. As a brief introduction, our OT report presents the technical approach to investment through the analysis of past price movements and volume changes in order to forecast future price directions. Technical analysis allows us to identify trend changes at an early stage (trend reversals) and to maintain an investment posture (continuation) until the weight of evidence indicates that the trend is in the midst of changing.

Off to a good start.  For the month, the technical recommendations we made had mostly played out as anticipated, and we were able to time the market with some degree of accuracy. For instance, we noticed that after a decent year-end run-up, our local benchmark appeared strained from a technical perspective. The key indicators (MACD, Stochastic and RSI) were beginning to show signs of weakness, and  as such, we decided to take some money off the table towards mid-January. For instance, of late, we recommended that traders square off their positions in Oldtown ("OLDTOWN" +13.3%), Zhulian Corporation ("ZHULIAN" +9.5%), Allianz Malaysia ("ALLIANZ" +8.4%) and Sapurakencana Petroleum ("SKPETRO"+15.0%) when their respective share prices looked toppish. 

Its payday! We also realised some gains on stocks such as Prolexus ("PRLEXUS" +26.8%), Perdana Petroleum ("PERDANA" +26.3%), Microlink Solutions ("MICROLN" +27.8%) and Hai-O Enterprise ("HAIO" +3.4%) when their target prices were met during the month. Meanwhile, there also a few losses were taken when the stop-loss levels were triggered on Redtone International ("REDTONE" -7.9%), SBC Corporation ("SBC" -7.1%) and SYF Resources ("SYF" -9.2%) and Zhulian Corporation ("ZHULIAN" -2.1%). 

All in all, the realised positions booked in an average gain of 8.7%.

Outperforming the benchmark. Additionally, we were also optimistic on a few other stocks, and had recommended a 'technical buy' on MISC ("MISC"), Alam Maritim Resources ("ALAM"), UEM Land Holdings ("UEMLAND"), CIMB Group Holdings ("CIMB"), Perdana Petroleum ("PERDANA") and Kossan Rubber Industries  ("KOSSAN"), all of which are still running on our tracker list. Currently, the tracker list of 6 stocks has an unrealised gain of +4.9%, as compared to the benchmark FBM KLCI which lost 3.6% during the month. Merely comparing the running positions against the benchmark, the unrealised positions have outperformed the FBM KLCI by a hefty 8.5 percentage points (10.5 percentage points if we take into account the realised gains).

February Investment Strategy. Our near term technical view remains unchanged, where we expect the local investor sentiment to remain jittery as we draw closer to the general election. We also believe that the string of public holidays in the coming weeks will likely cap any significant upside on the local bourse given that investors would be reluctant to take up any major positions amid the uncertainty. Thus, we remain mostly on the sidelines going forward, at least until there is more clarity. We will be issuing more 'Non-Rated' technical recommendations as compared to the outright 'Technical Buy' calls in view of the current situation. Till next month!

Source: Kenanga